A health savings account (HSA) is a tax-advantaged savings account where you can set aside money through payroll deductions to help pay for medical expenses like copays, prescription medications or other expenses related to diagnosing, treating or preventing illnesses. HSA funds can roll over at the end of the year.
To use an HSA in 2018, you must be covered under a high deductible health plan (HDHP) with a minimum deductible of at least $1,350 for individual coverage or $2,700 for families, and a maximum out of pocket amount of $6,650 for individual coverage or $13,300 for families. In addition, you cannot be covered under any other health plan that is not an HDHP, with limited exceptions. The maximum HSA contribution is $3,450 for an individual, or $6,900 for a family.
Unlike FSAs, HSAs are portable. That means you can carry over unused funds from one year to another. You don’t risk losing money that isn’t spent during the year. If you decide to leave your job or the workforce, you can take your HSA with you.
A flexible spending account (FSA) is another type of tax-advantaged savings account where you can set aside money through payroll deductions to help pay for qualified medical expenses. FSA funds don’t roll over at the end of the year, so during open enrollment, you’ll have to decide how much money you want to set aside for the year, which can be difficult. If you don’t use it all by the end of the year, you may forfeit the balance. If you leave your job before the year is up, you’ll also likely forfeit the balance. Another important difference between HSAs and FSAs — if you’re self-employed, you won’t be eligible for an FSA.
Employees can set aside up to $2,650 in 2018, and if you have a spouse with an FSA, he or she can contribute the same amount.
Figuring out what FSAs and HSAs cover can be complicated, so be sure to ask your human resources representative about anything you don’t understand.
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